off the foundations of our whole national fortune, perhaps the twaddlers who are now screaming about the wastefulness of building four more Dreadnoughts will understand why sane men are regarding this opposition as treasonable nonsense.What would be the result of such an action on the part of a German army in London? The first effect, of course, would be that, as the Bank of England is the banker of all other banks, there would be a run on every bank in England, and all would suspend payment. But London being the clearing-house of the world, bills drawn thereon but held by foreigners would not be met; they would
be valueless; the[Pg 57] loanable value of money in other centres would be enormously raised, and instruments of credit enormously depreciated; prices of all kinds of stocks would fall, and holders would be threatened by ruin and insolvency. German finance would represent a condition as chaotic as that of England. Whatever advantage German credit might gain by holding England's gold it would certainly be more than offset by the fact that it was the ruthless action of the German Government that had produced the general catastrophe. A country that could sack bank reserves would be a good one for foreign investors to avoid: the essential of credit is confidence, and those who repudiate it pay dearly for their action. The German Generalissimo in London might be no more civilized than Attila himself, but he would soon find the difference between himself and Attila. Attila, luckily for him, did not have to worry about a bank rate and such-like complications; but the German General, while trying to sack the Bank of England, would find that his own balance in the Bank of Germany would have vanished into thin air, and the value of even the best of his investments dwindled as though by a miracle; and that for the sake of loot, amounting to a few sovereigns apiece among his soldiery, he would have sacrificed the greater part of his own personal fortune. It is as certain as anything can be that, were the German army guilty of such economic vandalism, there is no considerable institution in Germany that would escape grave damage--a damage in credit and security[Pg 58] so serious as to constitute a loss immensely greater[12] than the value of the loot obtained. It is not putting the case too strongly to say that for every pound taken from the Bank of England German trade would pay many times over. The influence
of the whole finance of Germany would be brought to bear on the German Government to put an end to a situation ruinous to German trade, and German finance would only be saved from utter collapse by an undertaking on the part of the German Government scrupulously to respect private property, and especially bank reserves. It is true the German Jingoes might wonder what they had made war for, and this elementary lesson in international finance would do more than the greatness of the British navy to cool their blood. For it is a fact in human nature that men will fight more readily than they will pay, and that they will take personal risks much more readily than they will disgorge money, or, for that matter, earn it. "Man," in the language of Bacon, "loves danger better than travail."
21
Events which are still fresh in the memory of business men show the extraordinary interdependence of the modern financial world. A financial crisis in New York sends up the English bank rate to 7 per cent., thus involving the ruin of many English businesses which might otherwise have weathered a difficult period. It thus happens that one section of the financial world is, against its will, compelled to come[Pg 59] to the rescue of any other considerable section which may be in distress.
From a modern and delightfully lucid treatise on international finance,[13] I take the following very suggestive passages:
Banking in all countries hangs together so closely that the strength of the best may easily be that of the weakest if scandal arises owing to the mistakes of the worst.... Just as a man cycling down a crowded street depends for his life not only on his skill, but more on the course of the traffic there.... Banks in Berlin were obliged, from motives of self-protection (on the occasion of the Wall
Street crisis), to let some of their gold go to assuage the American craving for it.... If the crisis became so severe that London had to restrict its facilities in this respect, other centres, which habitually keep balances in London which they regard as so much gold, because a draft on London is as good as gold, would find themselves very seriously inconvenienced; and it thus follows that it is to the interest of all other centres which trade on those facilities which London alone gives to take care that London's task is not made too difficult. This is especially so in the case of foreigners, who keep a balance in London which is borrowed. In fact, London drew in the gold required for New York from seventeen other countries....
Incidentally it may be mentioned in this connection that German commerce is in a special sense[Pg 60] interested in the maintenance
of English credit. The authority just quoted says:
It is even contended that the rapid expansion of German trade, which pushed itself largely by its elasticity and adaptability to the wishes of its customers, could never have been achieved if it had not been assisted by the large credit furnished in London.... No one can quarrel with the Germans for making use of the credit we offered for the expansion of the German trade, although their over-extension of credit facilities has had results which fall on others besides themselves....
Let us hope that our German friends are duly grateful, and let us avoid the mistake of supposing that we have done ourselves any permanent harm by giving this assistance. It is to the economic interests of humanity at large that production should be stimulated, and the economic interest of humanity at large is the interest of England, with its mighty world-wide trade. Germany has quickened production with the help of English credit, and so has every other economically civilized country in the world. It is a fact that all
of them, including our own colonies, develop their resources with the help of British capital and credit, and then do their utmost
to keep out our productions by means of tariffs, which make it appear to superficial observers that England provides capital for the destruction of its own business. But in practice the system works quite otherwise, for all these countries that develop their resources with our money aim at developing an export trade and selling goods to us, and as they have not yet reached the point of economic altruism at which they are prepared to sell goods for nothing, the increase in their production means an[Pg 61] increasing demand for our commodities and our services. And in the meantime the interest on our capital and credit, and the profits of working the machinery of exchange, are a comfortable addition to our national income.
But what is a further corollary of this situation? It is that Germany is to-day in a larger sense than she ever was before England's
debtor, and that her industrial success is bound up with English financial security.
What would be the situation in Britain, therefore, on the morrow of a conflict in which that country was successful?
I have seen mentioned the possibility of the conquest and annexation of the free port of Hamburg by a victorious British fleet. Let us assume that the British Government has done this, and is proceeding to turn the annexed and confiscated property to account.
Now, the property was originally of two kinds: part was private property, and part was German Government, or rather Hamburg Government, property. The income of the latter was earmarked for the payment of interest of certain Government stock, and the action of the British Government, therefore, renders the stock all but valueless, and in the case of the shares of the private companies entirely so. The paper becomes unsaleable. But it is held in various forms--as collateral and otherwise--by many important banking concerns, insurance companies, and[Pg 62] so on, and this sudden collapse of value shatters their solvency. Their collapse not only involves many credit institutions in Germany, but, as these in their turn are considerable debtors of London, English institutions are also involved. London is also involved in another way. As explained previously, many foreign concerns keep balances in London, and the action of the British Government having precipitated a monetary crisis in Germany, there is a run on London
